National Living Wage: Self-employed lose out as 1.7m workers to earn under minimum wage

More than 1.7 million workers in the UK will not be covered by the new National Living Wage (NLW) plans introduced by the government, a study has found. Almost two million self-employed people on low pay will miss out on the NLW, which is to come into force in April.

A study by the Social Market Foundation (SMF) found that 1.73 million low-paid self-employed people would miss out on the government's 'high-wage, low-tax, low-welfare economy'. As businesses prepare to pay a minimum £7.20 an hour to its employees from April onwards, self-employed workers will miss out on the new regulation. The SMF also found that almost half of the UK's self-employed are in low pay compared with 22% of regular employees.

"Effectively, with the National Living Wage acting as a floor for employees, there is a risk that low pay continues to exist, but largely invisible, through self-employment," the SMF said in a press release. "Further, the self-employed are not entitled to same rights as employees, such as holiday and sick pay. There are different tax implications: elements of National Insurance do not apply to the self-employed."

SMF chief economist Nida Broughton also argued that the NLW policy makes it a more attractive option for companies to hire contractors rather than employees. That way, they are not forced to pay the national living wage while contractors remain low paid.

The UK government defended the structure of the NLW legislation, saying that it is committed to boosting entrepreneurs and self-employed people through start-up loans, tax allowances and initiatives such as cutting red tape by £10bn.

"Our new National Living Wage will give a boost to over one million low-paid workers when it takes effect next week," a Business, Innovation and Skills spokesperson told the BBC.